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Sunday, 10 December 2006

Satellite Radio Wars

Twin Falls, Idaho is the 192nd television market and, for many years, had only one station. A good friend of mine with a long commercial television history once described it as a place where one station would do well, but two would starve. His remark reminds me of the satellite radio industry, which has had Wall Street woes over the past year, fueling talk of a merger (see Analyst Asserts: Strong Chance of XM-Sirius Merger in Next 18-Months). In my view, satellite radio faces its own disruption from Internet radio -- perhaps through a HDR-IPR hybrid that could make terrestrial broadcasters into direct competitors.

Daniel Gross thinks both companies could lose. Writing in Sirius Pain: XM and Sirius Could Both Lose the Satellite Radio Wars, he follows a good economic analysis of satellite radio with:

... The business models of expensive talent, discounted subscriptions, and heavy
marketing clearly aren't sustainable for too much longer. And so it's not
surprising that analysts have begun to speculate about a potential merger. A merger of equals is certainly possible,
though not likely given the egos involved. More likely is a situation in which
one falters significantly and the other pounces for an acquisition. A third
possibility, which analysts seem unable to contemplate, is that both could fail,
and somebody else could end up with both of their carcasses. ...

Link: Slate. Thanks to John Proffitt (KAKM/KSKA) for a tip on the Slate article. --Dennis

Comments

It sounds prescient now, but Peter Jablow predicted all this in 2001 right after he left NPR.

I think that both XM and Sirius will soon realize that they are both essentially radio production companies -- with an expensive, somewhat limited, and increasingly burdensome delivery technology. When the time comes to replace those satellites at the end of their service life to the tune of hundreds of millions, that will force the issue.
Both XM and Sirius have been moving their programming online over the last few years, in various combinations of free and subscription service. This gives them a pretty flexible two-pronged delivery system: satellite when the subscriber is in motion, Internet when they are in the office -- especially in cities, where they have coverage problems from the satellites.

I have an XM subscription but due to our location in back of a large hill that blocks the satellite to the south, I listen online. As wireless Internet arrives and portable screens get a bit larger to facilitate navigation, I won't need to bother with my satellite receiver -- even though it's quite portable. Even now a typical smartphone does the job because you can save your favorite channels as presets in the web interface.

The main issue with this setup is the double cost -- you pay for the programming and then you pay again for delivery over the 3G cellular nets. Hmmm, why not have the carriers sell it and take a cut like they are trying to do with music? Sounds like a syndication opportunity to me.

The main place both XM and Sirius add value is in the quality of the programming and the talent. I predict that before or after they merge, they will both be forced to unbundle at least the top tier of their programming and start syndicating it -- both to terrestrial radio (Stern would have to have a sanitized version if he wants back in) and to the large Internet content silos.

They will sell subscriptions to the whole (merged) bundle online at a slightly lower price, and position satellite delivery as a value added service for moving targets and rural listeners. Ultimately, as they migrate the programming online and back on-air, they can use a portion of their satellite bandwidth for various kinds of premium or private national data distribution services.